Background and Introduction
1. The applicant filed the application dated 20th December 2024 seeking leave of the Court to commence a derivative action on behalf of the 2nd applicant (the Company), premised on alleged misconduct by the respondents in their capacity as directors. The application further seeks orders compelling that the proceeds derived from the company’s assets be deposited into the company’s bank account. In response, the 1st and 2nd respondents filed a Preliminary Objection dated 14th May 2025, challenging the competence and maintainability of the application.
2. The grounds upon which the Preliminary Objection is founded are that the application dated 20th December 2024 was instituted in the name and on behalf of the company without lawful authority or a valid board resolution authorizing such institution. The respondents contend that no resolution was passed either approving the commencement of the proceedings or appointing the firm of Kirimi Mbobua & Company Advocates to act for the company.
3. The respondents argue that the absence of a valid resolution contravenes the mandatory procedural and statutory requirements set out under the Companies Act, 2015. Consequently, they submit that the inclusion of the company in the suit is improper, irregular, and fatally defective. On this basis, they seek orders striking out the company as a party to the proceedings, disqualifying the firm of Kirimi Mbobua & Company Advocates from acting on its behalf, and striking out all pleadings filed in the name of the company for want of proper authority.
4. The applicants oppose the preliminary objection on the basis that it does not raise a pure point of law but instead introduces disputed factual issues, contrary to the principles established in Mukisa Biscuit Manufacturing Co Ltd V West End Distributors Ltd, [1969] EA 696. They argue that the respondents’ contentions, that a board resolution was required before filing the application for leave to commence a derivative suit, and that the firm of Kirimi Mbobua & Co. Advocates lacks valid authority to act for the company, are factual matters that require evidence and cannot be resolved through a preliminary objection.
5. The applicants further assert that there is no express statutory requirement under the Companies Act, 2015 mandating a board resolution before instituting derivative proceedings. On the contrary, Sections 238 and 239 of the Act allow a member of a company to seek leave to bring a derivative claim where the cause of action is vested in the company and the relief sought is for its benefit. Requiring board approval in such circumstances would defeat the purpose of derivative actions, which are intended to protect companies from wrongdoing by those in control.
6. Additionally, the applicants maintain that the question of whether an advocate is properly instructed by a company is evidentiary in nature. They contend that the objection is a tactical attempt to delay the proceedings, lacks a proper legal foundation, does not raise a point capable of disposing of the substantive application, and amounts to an abuse of the court process. Accordingly, they urge that it be dismissed.
Analysis and Determination
7. I have considered the Preliminary Objection together with the written submissions of the parties. While the significance of board resolutions in instituting suits on behalf of a company is acknowledged, the nature of the present application is materially distinct. The application dated 20th December 2024 is not a substantive suit but rather an application for leave under Section 239 of the Companies Act to commence a derivative claim. Section 238(1) defines a derivative claim as proceedings instituted by a member:
"(a) in respect of a cause of action vested in the company; and
(b) seeking relief on behalf of the company."
8. The rationale behind derivative claims lies in the recognition that those in control of a company, typically its directors or majority shareholders, may, in some circumstances, act contrary to the interests of the company, particularly where they are the alleged wrongdoers. In such cases, the law permits a minority shareholder or member to initiate action to safeguard the company’s interests, notwithstanding the opposition or inaction of the board.
9. The jurisprudential foundation for derivative actions can be traced to the rule in Foss V Harbottle, [1843] 67 ER 189 and its exceptions, which were affirmed by the Court of Appeal in Rai & Others V Rai & Others, [2002] 2 EA 537.
10. Requiring a board resolution to authorize the filing of an application for leave to bring a derivative suit would defeat the very purpose of derivative proceedings. It would empower alleged wrongdoers to block legal redress by refusing to pass the requisite resolutions, thereby shielding themselves from scrutiny and undermining the statutory scheme. Tellingly, the respondents have not cited any express provision under the Companies Act mandating such a resolution prior to seeking leave to commence a derivative claim. Accordingly, the objection based on the absence of a board resolution is misplaced, misconceived, and legally unsustainable at this preliminary stage.
11. With respect to the objection challenging the representation of the company by the firm of Kirimi Mbobua & Company Advocates, the Court observes that the issue raised, whether the firm is properly instructed, is inherently factual. It calls for an evidentiary inquiry into the existence and validity of the alleged authority to act, which cannot be resolved without examining supporting documentation.
12. Such a matter does not amount to a pure point of law and therefore falls outside the limited scope of what may properly be raised by way of a preliminary objection, as articulated in the Mukisa Biscuit decision. In view of the foregoing, the Court finds that the Preliminary Objection dated 14th May 2025 fails to meet the legal threshold. It raises contested factual matters unsuitable for summary determination at the interlocutory stage and is accordingly without merit.
Disposition
13. Accordingly, the Preliminary Objection is dismissed with costs to the applicants.
It is so ordered.
1. The applicant filed the application dated 20th December 2024 seeking leave of the Court to commence a derivative action on behalf of the 2nd applicant (the Company), premised on alleged misconduct by the respondents in their capacity as directors. The application further seeks orders compelling that the proceeds derived from the company’s assets be deposited into the company’s bank account. In response, the 1st and 2nd respondents filed a Preliminary Objection dated 14th May 2025, challenging the competence and maintainability of the application.
2. The grounds upon which the Preliminary Objection is founded are that the application dated 20th December 2024 was instituted in the name and on behalf of the company without lawful authority or a valid board resolution authorizing such institution. The respondents contend that no resolution was passed either approving the commencement of the proceedings or appointing the firm of Kirimi Mbobua & Company Advocates to act for the company.
3. The respondents argue that the absence of a valid resolution contravenes the mandatory procedural and statutory requirements set out under the Companies Act, 2015. Consequently, they submit that the inclusion of the company in the suit is improper, irregular, and fatally defective. On this basis, they seek orders striking out the company as a party to the proceedings, disqualifying the firm of Kirimi Mbobua & Company Advocates from acting on its behalf, and striking out all pleadings filed in the name of the company for want of proper authority.
4. The applicants oppose the preliminary objection on the basis that it does not raise a pure point of law but instead introduces disputed factual issues, contrary to the principles established in Mukisa Biscuit Manufacturing Co Ltd V West End Distributors Ltd, [1969] EA 696. They argue that the respondents’ contentions, that a board resolution was required before filing the application for leave to commence a derivative suit, and that the firm of Kirimi Mbobua & Co. Advocates lacks valid authority to act for the company, are factual matters that require evidence and cannot be resolved through a preliminary objection.
5. The applicants further assert that there is no express statutory requirement under the Companies Act, 2015 mandating a board resolution before instituting derivative proceedings. On the contrary, Sections 238 and 239 of the Act allow a member of a company to seek leave to bring a derivative claim where the cause of action is vested in the company and the relief sought is for its benefit. Requiring board approval in such circumstances would defeat the purpose of derivative actions, which are intended to protect companies from wrongdoing by those in control.
6. Additionally, the applicants maintain that the question of whether an advocate is properly instructed by a company is evidentiary in nature. They contend that the objection is a tactical attempt to delay the proceedings, lacks a proper legal foundation, does not raise a point capable of disposing of the substantive application, and amounts to an abuse of the court process. Accordingly, they urge that it be dismissed.
Analysis and Determination
7. I have considered the Preliminary Objection together with the written submissions of the parties. While the significance of board resolutions in instituting suits on behalf of a company is acknowledged, the nature of the present application is materially distinct. The application dated 20th December 2024 is not a substantive suit but rather an application for leave under Section 239 of the Companies Act to commence a derivative claim. Section 238(1) defines a derivative claim as proceedings instituted by a member:
"(a) in respect of a cause of action vested in the company; and
(b) seeking relief on behalf of the company."
8. The rationale behind derivative claims lies in the recognition that those in control of a company, typically its directors or majority shareholders, may, in some circumstances, act contrary to the interests of the company, particularly where they are the alleged wrongdoers. In such cases, the law permits a minority shareholder or member to initiate action to safeguard the company’s interests, notwithstanding the opposition or inaction of the board.
9. The jurisprudential foundation for derivative actions can be traced to the rule in Foss V Harbottle, [1843] 67 ER 189 and its exceptions, which were affirmed by the Court of Appeal in Rai & Others V Rai & Others, [2002] 2 EA 537.
10. Requiring a board resolution to authorize the filing of an application for leave to bring a derivative suit would defeat the very purpose of derivative proceedings. It would empower alleged wrongdoers to block legal redress by refusing to pass the requisite resolutions, thereby shielding themselves from scrutiny and undermining the statutory scheme. Tellingly, the respondents have not cited any express provision under the Companies Act mandating such a resolution prior to seeking leave to commence a derivative claim. Accordingly, the objection based on the absence of a board resolution is misplaced, misconceived, and legally unsustainable at this preliminary stage.
11. With respect to the objection challenging the representation of the company by the firm of Kirimi Mbobua & Company Advocates, the Court observes that the issue raised, whether the firm is properly instructed, is inherently factual. It calls for an evidentiary inquiry into the existence and validity of the alleged authority to act, which cannot be resolved without examining supporting documentation.
12. Such a matter does not amount to a pure point of law and therefore falls outside the limited scope of what may properly be raised by way of a preliminary objection, as articulated in the Mukisa Biscuit decision. In view of the foregoing, the Court finds that the Preliminary Objection dated 14th May 2025 fails to meet the legal threshold. It raises contested factual matters unsuitable for summary determination at the interlocutory stage and is accordingly without merit.
Disposition
13. Accordingly, the Preliminary Objection is dismissed with costs to the applicants.
It is so ordered.